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Quality uncertainty and intermediation in international trade

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  • Dasgupta, Kunal
  • Mondria, Jordi

Abstract

Uncertainty about product quality is endemic in international trade. We develop a dynamic, two-country model, where home producers differ in terms of the quality of their products. Quality is not fully observed by foreign consumers initially but known once the product is consumed. We show that this lack of information generates an information cost of exporting, over and above the usual fixed costs used in standard heterogeneous firm models. We use the model to examine the role played by intermediaries in alleviating quality uncertainty. In the process, we uncover a positive externality of using intermediaries. The model generates a novel prediction about price dynamics that finds support in the data.

Suggested Citation

  • Dasgupta, Kunal & Mondria, Jordi, 2018. "Quality uncertainty and intermediation in international trade," European Economic Review, Elsevier, vol. 104(C), pages 68-91.
  • Handle: RePEc:eee:eecrev:v:104:y:2018:i:c:p:68-91
    DOI: 10.1016/j.euroecorev.2018.02.002
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    Cited by:

    1. Maggie X. Chen & Min Wu, 2021. "The Value of Reputation in Trade: Evidence from Alibaba," The Review of Economics and Statistics, MIT Press, vol. 103(5), pages 857-873, December.
    2. Qianqian Wang & Mark J. Gibson, 2018. "Exporters in cross†section: Direct versus intermediated trade," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 84-95, February.
    3. Emily Blanchard & Tatyana Chesnokova & Gerald Willmann, 2013. "Private Labels and International Trade: Trading Variety for Volume," School of Economics and Public Policy Working Papers 2013-01, University of Adelaide, School of Economics and Public Policy.
    4. Creane, Anthony & Jeitschko, Thomas D., 2016. "Exporting to bypass weak institutions," European Economic Review, Elsevier, vol. 83(C), pages 185-197.
    5. Cagé, Julia & Rouzet, Dorothée, 2015. "Improving “national brands”: Reputation for quality and export promotion strategies," Journal of International Economics, Elsevier, vol. 95(2), pages 274-290.
    6. Marco Di Cintio & Emanuele Grassi & Claudio Petti, 2022. "Import, Export and Trade Intermediaries: What Matters the Most?," International Business Research, Canadian Center of Science and Education, vol. 15(4), pages 1-18, April.
    7. Parisa Kamali, 2019. "Exporting Through Intermediaries: Impact on Export Dynamics and Welfare," IMF Working Papers 2019/302, International Monetary Fund.
    8. repec:spo:wpmain:info:hdl:2441/2si2or72bc8ed899298h75877i is not listed on IDEAS
    9. Duan, Jianhua & Xuefeng, Qian & Das, Kuntal K. & Meriluoto, Laura & Reed, W. Robert, 2020. "A replication of "The role of intermediaries in facilitating trade" (Journal of International Economics, 2011)," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-30.
    10. Sandra Poncet & Meina Xu, 2018. "Quality screening and trade intermediaries: Evidence from China," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 223-256, February.
    11. Christoph March & Ina Schieferdecker, 2021. "Technological Sovereignty as Ability, Not Autarky," CESifo Working Paper Series 9139, CESifo.
    12. Rasmusen, Eric, 2017. "A model of trust in quality and North–South trade," Research in Economics, Elsevier, vol. 71(1), pages 159-170.
    13. Nucci, Francesco & Pietrovito, Filomena & Pozzolo, Alberto Franco, 2023. "Intermediated trade and credit constraints: The case of firm’s imports," International Economics, Elsevier, vol. 175(C), pages 201-220.
    14. Zhang, Yi & Liu, Chun & Wang, Ting, 2020. "Direct or indirect? The impact of political connections on export mode of Chinese private enterprises," China Economic Review, Elsevier, vol. 61(C).
    15. Gabor Bekes & Balázs Murakozy, 2015. "The ladder of foreign sales: Internationalization modes of European firms," CERS-IE WORKING PAPERS 1527, Institute of Economics, Centre for Economic and Regional Studies.
    16. Pol Antràs & Arnaud Costinot, 2011. "Intermediated Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1319-1374.
    17. repec:hal:spmain:info:hdl:2441/2si2or72bc8ed899298h75877i is not listed on IDEAS
    18. Jianhua Duan & Xuefeng Qian & Kuntal K. Das & Laura Meriluoto & W. Robert Reed, 2019. "Further Tests of Ahn, Khandelwal, and Wei’s (2011) Model of Intermediated Trade," Working Papers in Economics 19/02, University of Canterbury, Department of Economics and Finance.

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    More about this item

    Keywords

    Intermediaries; Quality; Screening; Incomplete information;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F10 - International Economics - - Trade - - - General
    • F19 - International Economics - - Trade - - - Other
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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